In many types of litigation in the United States, a prospective plaintiff can secure legal representation on a contingent fee basis. In a contingent fee arrangement, the attorney for the plaintiff agrees to accept all or a portion of his or her fee as a percentage of any recovery ultimately obtained on behalf of the plaintiff. Contingent fee representation is more common in tort litigation, and particularly in connection with personal injury claims.
Contingent fee litigation is applauded by some as allowing poorer plaintiffs a chance to be heard in a legal system that would be cost-prohibitive if the plaintiff had to directly pay attorney's fees. On the other hand, some criticize contingent-fee litigation as greatly increasing the inducement to file frivolous litigation in the hopes of garnering a settlement.
In support of this criticism, it has been noted that a defendant generally has no claim against an ultimately unsuccessful plaintiff. As a result, contingent fee arrangements are essentially unavailable to defendants in litigation. Accordingly, the defendants, or very commonly an insurer on their behalf, are directly responsible for paying attorney's fees—even if the defendant prevails in the litigation. Thus, defendants (or their insurers) in weak or frivolous lawsuits will often agree to settle simply because the attorney's fees required to prevail are estimated to be less than a proffered settlement.
Advocates of the contingent fee system argue that, since the attorney must essentially work for free unless the plaintiff prevails, attorneys will screen out frivolous suits. However, an attorney when deciding to take a contingent fee case is limited in the available information, and must depend largely on representations made the plaintiff to assess the merits of a claim. Additionally, once the attorney has agreed to represent a given plaintiff, the attorney must abide by the plaintiff's decisions to settle or proceed with the litigation even if the attorney disagrees.
Whether or not the criticisms of contingent fee arrangements are justified, the reality is that the volume of litigation is increasing sharply, and many companies and professionals face dramatically rising insurance premiums and increasing legal costs, as a result. Some U.S. companies that can afford to do so are motivated to locate assets and business operations beyond the jurisdiction of U.S. courts, and some foreign companies are wary of expanding operations into the U.S. market. Much of the blame for these trends has been laid at the feet of contingent fee agreements creating a risk free atmosphere for plaintiffs wishing to bring lawsuits.